House Speaker John Boehner on Wednesday offered legislation to put off for one year a student loan interest rate hike, keeping subsidized student loans at 3.4 percent. The proposal responds to calls from Democrats and President Obama to stop the current student loan interest rates from doubling if Congress doesn’t act by June 30. U.S. PIRG estimates that would add $2,800 to the average subsidized Stafford loan over 10 years.
The bill is headed for a House vote on Friday.
The announcement is an abrupt turnaround from statements that Republicans were making even last week, indicating they had little sympathy for an interest rate deadline they said was manufactured by Democrats. Democrats in 2007 agreed to a five-year freeze of interest rates at 3.4 percent because a longer-term fix would have cost more money.
But on Monday, the presumptive Republican presidential nominee Mitt Romney said he supported the lower student loan rate. That got Republicans scrambling to figure out how to respond to the interest rate problem without handing Democrats a political win. Obama has made the student loan rate cut his issue of the week, going on a three-school tour to encourage Congress to stop the rate hike from going into effect.
The president’s campaign set off a flurry of activity in both chambers as members tried to keep what could be highly damaging political problem from escalating. Senate Republicans were caught off guard. House Education and the Workforce Committee Chairman John Kline, R-Minn., floated the idea of variable interest rates for new subsidized student loans to stabilize the problem. He hopes to continue working on that issue as lawmakers try to stave off the mid-summer rate hike.
The House legislation would cost roughly $6 billion and would be paid for by the health prevention fund in the administration’s health care law to help prevent chronic disease. The same fund was tapped to pay for the payroll tax deal earlier in the year.
Senate Democrats have their own version of a one-year fix that would be funded by raising taxes on so-called S Corporations. Inevitably, both bills will be debated based on their pay-fors, not the student loan rate. “This issue is not a partisan issue,” Boehner said on Wednesday. He’s right about that. Lawmakers from both parties worry that the student loan hike could lose them some credibility if they don’t fix it.